Economics PPT about comparative advantage and competative advantage

International trade and it's theory of absolute and comparative advantage in short and easy words

1. COLLEGE OF AGRICULTURE AND RESEARCH STATION BOIRDADAR, RAIGARH Presentation On :- International Trade, theories of absolute and comparative advantage Submitted By :- Paras Naik Student Id :- 20221715 Submitted To :- Dr. Meenakshi Chandra Department of Agricultural Economics

2. International Trade The exchange of goods and services (trade) among countries across national boundaries is known as international trade. No country can be self-sufficient in producing all the goods and service required by it. Thus, Counties need to trade to obtain commodities, they cannot produce themselves or they can purchase else where at a lower price. The act of selling domestically produced goods to international Consumers is known as exportation. Ex- India Exports refined Petrolium, Jewellery, Rice etc. Most common destination for exports of India are United states, China, Bangladesh, Hong kong etc.

3. The act of purchasing goods from a foreign country. In order to sell them domestically is known as importation. Ex.- India imports crude oil, Coal, Gold, Electronic item etc. Most common countries are USA, UAE, China, Saudi Arabia.

4. International Trade - Why/Reason Countries cannot domestically produce all the goods and services that each individual consumer wants and needs. Each country has different factors of production. (Land, labour and Capital) When domestic production is greater than domestic demand for a good, excess production is traded on the international market.

5. ABSOLUTE ADVANTAGE This theory was developed by Adam Smith. Talks about who can do it better, cheaper and quicker. Absolute advantage, says that one country would have an absolute advantage over the other if it can produce same amount of goods or greater output of a good or service than other countries using the same amount of resources or even less.

6. EXAMPLE :- Party A can produce 5ton of cassava per hour with 6 employees and Party B can produce 10ton of cassava per hour with 6 employees. Assuming that the employees of both parties are paid equally, Party B has an absolute advantage over Party A in producing cassava per hour. This is because Party B can produce twice as many cassava as Party A can with the same number of employees.

7. COMPARATIVE ADVANTAGE This theory was developed by David Ricardo. Comparative advantage refers to the ability of a party to produce a particular good or service at a lower marginal and opportunity cost over another. The conclusion drawn is that each party can gain by specializing in the good where it has comparative advantage, and trading that good for the other.

8. Even if one party is more efficient in the production of all goods (absolute advantage in all goods) than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies. EXAMPLE- 2 parties producing 2 commodities with the same resources, time, all factors been equal. Output as shown below:- Party A-1000tons of cassava, 2500tons of cotton. Party B-1000tons of cassava, 1000tons of cotton.

9. SIMILARITIES Both theories supports Free Trade approach unlike the mercantilism theory. Both theories elucidates a concept of Division of labour. They talk about gains for both home and host country.(positive sum game). Specialization. Among others.

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